Bears eye retest of trendline critical support

Gold price, XAU/USD, ended the week strong and corrected from last week’s downtrend lows from $1,780, moving to yesterday’s support at nearly $1,800. Trading around Friday’s close near $1,791, the yellow metal is technically on thin ice as it balances on the critical daily trendline support for the open.

Risk appetite improved on Friday. Global equities rallied with corporate earnings in the spotlight, which was a positive direction and a welcome distraction from geopolitical turmoil and concerns about Federal Reserve tightening. Economic data also helped ease inflation concerns, which left the US dollar consolidating and US yields lagging.

U.S. Treasury yields fell on the curve on Friday as the Fed’s favorite inflation gauge, the personal consumption expenditure (PCE) price index, remained within expectations. In the 12 months to December, the PCE rose 5.8%. This is the strongest gain since 1982 and follows a 5.7% year-on-year increase in November. Nonetheless, the 2-year and 10-year yield curve steepened to 65.10 basis points after hitting its narrowest spread since November 2020 on Thursday.

The result was significant as the Federal Reserve signaled on Wednesday that it would likely raise rates in March when it also reaffirmed its intention to end its pandemic-era bond purchases at the same time. That would pave the way for the launch of a significant reduction in its assets, unnerving the markets, which weighed on stocks and supported the US dollar.

“The Fed’s hawkish tone is undermining market risk appetite, but safe-haven flows also remain subdued despite rising risks of conflict in Ukraine, leaving investors with little safe haven,” they explained. TD Securities analysts. “We expect the precious metals complex to struggle to attract capital in this environment.” This is said after gold posted its biggest weekly loss since August.

The week ahead

Meanwhile, the week ahead could be critical for gold given the series of US events that include US Non-Farm Payrolls data and US ISM figures.

“Other regional surveys for January will be released early next week, so expectations may change, but the surveys already released point to declines in both ISM indices,” analysts at TD Securities said. “Much of the weakening can probably be explained by the temporary fallout from Omicron, but the weakening of the fiscal stimulus impetus is also likely causing some slowdown.

Regarding the employment data, the analysts explained that “the recovery in employment has probably been temporarily interrupted by the surge in COVID cases caused by Omicron”. Many employees who had to self-isolate likely continued to be paid and therefore remained on the payroll, but many likely did not get paid. The report will likely show continued strength in wage gains. The report will include the annual review of the data.”

Gold technical analysis

Analysts at ANZ Bank argued that gold appears vulnerable to further losses, having broken below its major moving averages to trade below $1,800 an ounce.

That being said, the price could be on the verge of a significant upward correction for the upcoming sessions, given that the price has come up against a wall of support as pictured above near 1,780 $. The 21 and 50 day EMAs coincide with a ratio of 38.2% and an average reversion of 50% thereafter, which could lead the price towards $1,810/820.

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